The financial services regulator may have absolved Bank of Valletta staff members of insider trading allegations over a failed property fund but its methodology has been questioned by a leading investment consultant.
It is with effect from January 2008 that we suspect the withdrawals increased substantially . . . the investigation should at least have started at that point
Finco Trust Group managing director Paul Bonello, who has been representing aggrieved investors against BOV, is insisting that an explanation be given over why the regulator used April 1, 2008 as the watershed date for investigating redemptions by bank staff when it was clear in January of the same year that the doomed property fund was already in hot water.
The La Valette Multi Manager Property Fund went belly up after it invested in high-risk sub funds that went bust. BOV suspended trading in the fund’s shares in August 2008, leaving investors high and dry.
The actual investigation has not been published by the Malta Financial Services Authority, with news of the bank’s absolution being released by BOV on Friday.
Having obtained a copy of the investigation, Mr Bonello yesterday quoted the report saying that 72 per cent of BOV Group staff and officials, who held shares in the property fund as at April 1, did not redeem the units prior to the suspension of the fund on August 8. The investigation focused on the remaining 28 per cent.
“It is with effect from January 2008 that we suspect the withdrawals increased substantially and we suggested, in writing, that the investigation should at least have started at that point,” Mr Bonello said, reacting to the bank’s claim to victory.
But the investigation has two apparently contradictory conclusions. It clears bank staff and “persons connected to them” of using confidential information to redeem their holdings in the property fund before it was suspended.
However, it also reprimands John Ripard, as former director of La Valette Funds, for disposing of more than 72,000 shares while in possession of sensitive information that was not available to the public. Mr Ripard, who is not a BOV board or management member, voluntarily tendered his resignation although BOV said he maintained his innocence.
Mr Bonello is not convinced. He insisted that, although the regulator investigated BOV staff and people connected to them, it did not probe any redemptions made by “favoured clients” who may have been tipped off by bank officials.
An investor, Mr Bonello said, had in December 2010 provided the MFSA with information, including names, about bank staff who had encouraged their prime clients, friends and relatives to sell their holdings in the property fund.
By November of last year, when the regulator had said it was going to publish the investigation “imminently”, this investor had not even been summoned by the Authority, Mr Bonello added.
“It was only after the investor’s legal adviser wrote to the Authority that he was called in for a discussion,” he said.
But, according to Mr Bonello, another serious breach is the fact that the Authority failed to look into claims that redemptions between January and August 2008 were made at over-inflated prices, the consequences of which were borne by investors who remained in the doomed fund.
Mr Bonello said the €16 million redeemed from the property fund in the 10 months leading to August 2008, when trading was suspended by the bank, was 16 times the value of redemptions made in two years from a competing property fund run by HSBC bank.
“If these strong suspicions are confirmed, one has to see how the Authority proposes to apply the legal instruments in the field of fiduciary and trustee law in order to trace money in case of unjust enrichment and to compensate innocent investors,” Mr Bonello said.
The issue of unjust enrichment was brought up in the notorious case of US financier Bernard Madoff, who was found guilty of massive fraud that cost investors billions of dollars.
Meanwhile, questions sent to the MFSA on Friday remained unanswered and Authority chairman Joe Bannister has not returned calls made to him by this newspaper.